I'm a thirty-year veteran of Wall Street and an outspoken critic of ineffective regulation and an advocate for economic and political sanity. Following a career as an in-house lawyer and industry regulator, I am now in private practice representing member firms, registered persons, Whistleblowers, and defrauded investors. I publish the RRBDlaw.com and the BrokeAndBroker.com websites.

Compliance Officer Gets Too Creative With Customer Complaint File

In response to the filing of a Complaint on July 11,2012, by the Department of Enforcement of the Financial Industry Regulatory Authority (“FINRA”), Respondent Andrew D. Carava submitted an Offer of Settlement dated January 14, 2013, which the regulator accepted. Under the terms of the Offer of Settlement, without admitting or denying the allegations in the Complaint, Respondent Andrew D. Carava consented to the entry of findings and violations and to the imposition of the sanctions. FINRA Department of Enforcement, Complainant, vs Andrew D. Carava, Respondent (Offer of Settlement, 2010021822701, January 22, 2013).

Carava entered the securities industry in 2001 and by July 2006 was registered in both General Securities Representative and General Securities Principal capacities. In January 2008, Carava was registered with Brewer Financial Services, LLC (“Brewer Financial”),where he served as a Compliance Officer until November 4, 2010.

According to the Offer of Settlement, prior to November 6, 2008, a Brewer Financial customer’s account was handled by two registered representatives (“RR1” and “RR2”), and following their departures from the firm, the account was handled by another stockbroker.

Not Moving At Light Speed

During the week of October 3, 2008, the customer alleged that he had tendered funds and an application for the purchase of an interest in Lightstone Value Plus Real Estate Investment Trust (“Lightstone REIT”) to RR1. Thereafter, the customer alleged that his purchase was rejected because the Lightstone REIT offering closed to new investors on October 9, 2008; and he blamed Brewer Financial for failing to promptly process his order, which he asserted had caused him to sustain a $30,000 loss.

FINRA Asks

According to the Offer of Settlement, on December 17, 2008, FINRA received a letter of complaint from the customer. On December 31, 2008, FINRA Staff sent Brewer Financial a letter, addressed to the firm’s Chief Compliance Officer (“CCO”), requesting that the firm provide its response to the customer’s allegations – the CCO gave FINRA’s letter to Carava and asked him to assemble the response to FINRA.

Carava’s Creativity

On or about January 26, 2009, Carava allegedly fabricated letters, purporting to show that in response to the subject customer complaint, information had been requested of RR1 and RR2. Allegedly, two of the letters were backdated to November 14, 2008, and addressed to the two RRs. These letters requested an explanations by November 24, 2008, from each RR as to the circumstances attendant to the 20-day processing delay. The Offer of Settlement alleges that Carava fabricated a second set of letters backdated to November 24, 2008. This latter set of bogus correspondence purportedly demonstrated that Carava had not received responses to his first written request from RR1 or RR2 – both individuals were given another deadline by December 3, 2008.

The Offer of Settlement alleges that Carava never sent any of the four letters. Further, Carava allegedly made copies of the letters, annotated the letters with notes, destroyed the original fictitious letters, and placed the copies in Brewer Financial’s customer complaint files.

On or about January 26, 2009, Carava sent a letter to FINRA in which he asserted that he had attempted to communicate with RR1 and RR2 after receipt of the customer’s complaint. In apparent support of his contention, Carava attached the four fictitious letters and represented that he sent the correspondence.

The Plot Thickens

On October 27, 2009, the Securities and Exchange Commission (“SEC”) began an investigation of RR1 and RR2, and requested that Brewer Financial provide documentation relating to its receipt and investigation of the customer’s complaint. In response to the SECs requests, Brewer Financial provided the fictitious letters created by Carava from its customer complaint file.

Okay, so, like, wow, this is one helluva mess and it ain’t gonna end well for Carava.

Back To Cold Reality

In consideration of the above, the Offer of Settlement asserted that Respondent Carava violated NASD Rule 3110 and FINRA Rule 2010. In accordance with the terms of the Offer of Settlement, FINRA imposed upon Brewer:

a two-year suspension from associating with any FINRA member in all principal capacities;

a concurrent 30-calendar-days suspension from associating with any FINRA member in any capacity;

a requalification by examination as a principal before acting again in that capacity; and

My compliments to FINRA on a presenting us with a compelling and well-written case — and an entertaining fact pattern. I mean, seriously, there’s not much for me to add. Sometimes, about the only thing left for us to do is to shake our heads in disbelief and try to suppress a smirk.

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So, Andrew Carava, representing Brewer Financial, submitted false documents to FINRA. During this time Eyman Errais, FINRA’s Director of the Kansas City District Office submitted doctored records to the SEC. Both Brewer Financial and FINRA signed an Offer of Settlement for these offenses.

Obviously, the Compliance Departments, in both Brewer Financial and FINRA, need to implement procedures that will prevent such occurrences from happening again. And who is overseeing the Compliance Departments? The plot could get even thicker!